General Motors Shifts the Automaker’s Corporate Governance Into Reverse

The S&P 500 and the Nasdaq Composite Index recorded their worst start to the year since 2001 on Monday, while the Dow Jones Industrial Average need only hark back to 2008. U.S. stocks are slightly lower today, with the Dow and the S&P 500 down 0.51% and 0.30%, respectively, at 12:30 p.m. EST. Shares of General Motors Company are underperforming, down 2.92%.

General Motors announced yesterday that it had named chief executive officer Mary Barra chairman of GM’s board. Perhaps it was timed to coincide with the announcement of the automaker’s $500 million investment in car-sharing platform Lyft, which has garnered a lot of attention. The GM board should want to let the former news out quietly because, from the point of view of corporate governance, they have just put the company into reverse.

Yes, it’s a symbolic victory for female corporate executives: On top of being GM’s first female CEO, May Barra is now the first person to head its board of directors (you’d think GM might have had the tact and good sense to use a different word than “chairman”).

Nevertheless, strictly in terms of good governance, GM made the wrong decision. Admittedly, there is a heavy precedent at this Detroit institution: Ten of Barra’s 13 predecessors as chief executive, going back to the legendary Alfred P. Sloan, served as chairman of the board concurrently for part or all of their tenures at the top of the company.

Still, you’d think we might have learned something with regard to corporate governance over the past 80 years. Not to mention that this is a company that declared bankruptcy in 2009 and has had four CEOs in that period (two of them interim CEOs).

With that record, it’s not too much to say that GM has a greater need for managerial oversight than most. In terms of best practice, that includes an independent board chair.

According to Road to Power: How GM’s Mary Barra Shattered the Glass Ceiling, in September 2014, Mary Barra told a meeting of GM’s top 300 executives worldwide: “As managers, it’s our job [to make sure people perform as they promised to].”

Surely what is good for employees is also good for executives — including the CEO. The role of a company chairman is exactly that: To ensure, on behalf of the shareholders, that the CEO performs as they promised to. Surely that makes more sense than a self-supervising CEO, doesn’t it?

A hat tip to John M. Angelo, who died on Friday. Angelo founded Angelo, Gordon & Co., a very savvy investor in “non-traditional” investments (distressed debt, real estate, arbitrage, etc), which now manages $27 billion. According to The New York Times, Angelo told the St. Lawrence graduating class last May: “In life, you have to keep moving to stay ahead. Don’t stand still.” Not exactly a value investing credo, but it’s good life advice for the start of the new year.

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